Nursing home provider fails in legal bid against 'extrapolation method' in determining Medicare overpayments

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A government contractor can calculate how much money a provider owes for Medicare overpayments by doing a limited audit and then extrapolating from those findings, a federal appeals court recently affirmed.

The case involves John Balko & Associates Inc., a Pennsylvania-based nursing home company. In 2008, the Medicare administrative contractor SafeGuard audited Balko due to suspicious billing patterns. Out of a “universe” of more than 5,400 involved beneficiaries, SafeGuard reviewed 581 claims from 81 beneficiaries, according to court documents.

Out of that statistical sampling, SafeGuard determined that more than 99% of claims had been paid improperly, the appeals court ruling states. The Department of Health and Human Services then directed SafeGuard to extrapolate the total overpayments to Balko, and the contractor found that the nursing home company owed the government more than $857,000.

Balko appealed the decision, and succeeded in having the total amount knocked down to about $640,000, according to legal documents. However, the provider failed to win on the merits of one of its arguments. Balko argued that SafeGuard violated the Medicare statute by using the original statistical sampling to extrapolate its total overpayments. In other words, Balko claimed that a separate sample must be used for extrapolation.

Balko appealed to the Medicare Appeals Council level, and the council found that a two-step process is not needed for extrapolating overpayments, upholding the $640,000 overpayment amount.

Subsequently, a federal district court and appeals court have ruled that they lack jurisdiction on some of Balko's core claims, but they have upheld the amount that Balko owes. The appeals council's decision was “supported by substantial evidence,” noted the Feb. 12 ruling from the Third Circuit Court of Appeals.

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